Rate hikes unlikely: Caribbean cat facility

Notwithstanding the nat cat events of 2017, the Caribbean Catastrophe Risk Insurance Facility (CCRIF) is confident that its balance sheet is adequately set up to absorb the risk of high payouts in years of multiple extreme events, Isaac Anthony, CEO of CCRIF, told Baden-Baden Today.

“Even with the claims paid thus far in 2017 we have substantial reinsurance coverage in place in the event that we have to pay additional claims in this policy year,” Anthony said. “It is an extremely remote possibility that CCRIF would exhaust its reinsurance coverage and reserves.”

He added that at this time, the main strategic focus is bringing together stakeholders to support the expansion of CCRIF so that its members are able to purchase additional coverage at affordable rates.

CCRIF was formed in 2007 as the first multi-country risk pool in the world and developed parametric policies backed by both traditional and capital markets. The facility offers earthquake, tropical cyclone and excess rainfall policies to Caribbean and Central American governments.

CCRIF maintains long-term relationships with more than a dozen reinsurance firms, under an excess of loss protection that allows it, together with its capital base, to make good on claims with a return period of one in 1,000 years. CCRIF’s reinsurance cover allows it to recover up to $175 million on top of its retention for the Caribbean tropical cyclone (TC) and earthquake (EQ) segregated portfolio, and the facility also purchases reinsurance for the smaller segregated portfolios (excess rainfall and Central America) to allow for a strong survivability and solvency position.

In light of the recent nat cat events, CCRIF foresees a likelihood that rates could increase.

“The 2017 Mexico earthquakes combined with TCs Harvey, Irma and Maria have resulted in high claims on reinsurance. We note that many reinsurers are looking at this year’s events as having more of an impact on earnings rather than capital, and at this time we have not seen any rating downgrades,” said CCRIF chief operations officer Gillian Golah.

“Many reinsurers also have capital management strategies that allow them to absorb shocks like this.

“CCRIF is unlikely to see the increases that other insurance companies may face given the nature of our business. Also, CCRIF retains a portion of the risk so that we are not completely reliant on the traditional reinsurance market,” she explained.

Golah added that CCRIF has the reputation and credibility and is well positioned to engage the support of donors and other developmental agencies to put strategies in place to ensure that its members are not completely exposed to unwarranted or unaffordable price increases.

CCRIF has participated in the ILS market in the past, sponsored by the World Bank, and plans to explore this again.

“We believe that this way of accessing alternative capital as an additional source of risk transfer is efficient and desirable. Once we finalise updating our main catastrophe models for TC and EQ, this source of capital will be explored again,” said Anthony.

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